A lot of flaws in there old boy, still banging the Oil coming down drum too eh? When did this start oh yeah, $100 ago eh?

He needs to define what he means by oil supply. So far current suppliers increasing supply hasn't had a net effect on prices, the announcement yesterday that Iraq has done deals to sort out their drilling infrastructure and get more out of the ground hasn't had an effect on prices (except to push them up again). The candidates and Bush saying that the US will drill more hasn't had an effect on prices (except to push them up again)...

So we have some data points suggesting that his logic is flawed somewhere.

Then we have to consider the other throttle on what to do with the crude when it's pumped and that's what to do with the creaking Oil Refining infrastructure. It's no use dramatically increasing the supply of the stuff if you can't do anything with it at a faster rate.

The candidates and Bush saying that the US will drill more hasn't had an effect on prices (except to push them up again)...

Obama hasn't said the US will drill more. And even if he had, it's not enough for the candidates to say it. Until Congress allows it, the market knows it won't happen. Perhaps you don't understand how the US government works.

And it's completely illogical to conclude that saying that we will drill more, even if both candidates had said it, pushed up prices.

I don't think Obama has stated any enrgy policy whatsoever other than spending more money on alternative energy (pork to solar). We've already been doing that, how much money is required to reach that magic solution?

It's a rather silly proposal, this government could fund 10 human to Mars programs, a couple of wars, drugs to senior citizens and still spend more without blinking.

It's not an either/or proposition, yet the idea of drilling requires the least amount of government money.

All Congress has to do is loosen restrictions and industry can take care of the entire supply chain.

BTW-They haven't done this for about 35 years, back when Jimmy Carter was suggesting we all wear sweaters.

I find it funny some people point fingers at Carter for his energy policy during the oil crisis but they persistently forget several things:

USA oil production peaked in 1970. Carter was only elected in 1977. There was a small subpeak in 1985 after which USA production went down a cliff. Need I remind you who was president then? The issue of reduced USA oil production was not caused by any president and no amount of drilling at currently protected areas will get it back as it was in 1970.

Carter did forbid use of nuclear breeder reactors, but those are anti-economic even at current nuclear fuel prices, let alone 1970s prices. Even if he justified it for the lame cause of non-proliferation, the technology still makes little sense.

Only way I see of reducing oil consumption further is to tax it more and fund alternatives. I think storage technology prizes are a good idea, as would be DOE and DARPA funding, but reducing taxes on low consumption vehicles, electric vehicles, and electric mass transit is probably enough. IMO EVs are the ideal alternative as they completely decouple the energy source from the vehicles, enabling changing the energy source mix as appropriate. There are EVs which are adequate for the needs of many today. Heck, even the old NiMH Toyota RAV4 EV was pretty good. Today we have lithium-ion batteries which can recharge to 80% in 15 minutes. The issues are cost and production capacity.

Feldstein's is not a bad article, but in essence he's just explaining the psychological component of inflation. He could have done it much more simply, which would have a better chance of reaching the ignorant (such as your second commenter). I think he should also have pointed out that considerations of future price movement matter so much to oil producers in part because of the enormous capital investment represented by a producing oil field. It's not like if the price jumps up in the next 6 months, but you've sold your oil already, you can just quickly drill a new well and produce some more. I think this makes oil sellers naturally conservative, which produces inflationary supply-side pressure.

Godzilla, you're wrong. Do a little googling, and you'll find the energy density of reasonable-cost batteries (lead acid) is 1/300 that of gasoline, and that of the fantastically expensive and somewhat dangerous Li-ion batteries is still 1/100 that of gasoline. That's an insurmountable obstacle for almost all transportation needs.

The key engineering development needed is a better battery, which is why McCain's "B-Prize" is such a good idea.

I don't think I'm the one who's been talking about the decrease in oil prices since they "peaked" at $48 a barrel.

His thesis is flawed and isn't even supportable by the observed data. Unfortunately we're having a classic speculative bubble driven by demand side pressures and other factors and talking it down with psuedo-economic market forces clap trap isn't going to help that any more than Rand has with his articles about the price being about to drop ($48, $78, $90ish etc...)

With luck the bubble will inflate naturally and as quickly as it grew without fragging any more of the global economy. I certainly hoped that would start to happen around $100 a barrel, but we're now cruising to $150 and I suspect the traders won't be happy until they "proven" that they can push it to $200 as Goldman Sachs and others are currently muttering about.

Supply/Demand market calculations and conventional logic on elasticity went out of the window on Oil price some time ago, as Rand, even if he doesn't know it, has been saying. We've an inflationary bubble.

That said, I'm off to buy some Tulip bulbs, with luck I can get the East Indian Company to transport them to a place where I can sell them via a Web site and perhaps get some wireless radio advertising...

And it's easy to see why. But I try to stay PG-13 most of the time, so I picked the most family-friendly terms I could.

His thesis is flawed...Unfortunately we're having a classic speculative bubble driven by demand side pressures

Um...Daveon, if you read the article, you'll note that his thesis is that we're having a classic speculative bubble driven by demand pressures. But you do get extra credit points for taking more than one sentence to contradict yourself.

I suspect the traders won't be happy until they "proven" that they can push it to $200

I think you haven't thought this through carefully. Everyone who ever buys a futures contract, or a stock, or a bit of real estate, wants the price to rise in the future. Duh. There's nothing special about a oil futures trader. His motivation and behaviour is indistinguishable from that of a home buyer or granny looking over the right stocks to put into her 401(k), and you and your master would probably not consider branding Joe and Jill Homebuyer nor Granny Fixedincome as antisocial wreckers.

And in all such cases, the wishes of the investor (or "speculator" in your pejorative terminology) are as nothing compared to the reality on the ground. If the future supply of oil is not as constrained as the investor hopes (or fears), then the price will fall, and that's that.

Additionally, you should consider the fact that a successful speculator's social function is to convey information from the future into the present, where it can be used to better shape decisions. (An unsuccessful speculator is just a bankrupt, of no interest or influence.) A speculator conveys insight (or lucky guesses) about the future price of commodities into the present. By doing so he spreads the shock of significant price changes over a longer time and cushions the blow. If the present oil investors are right, and the supply of oil is shrinking fast, then they have brought us painful knowledge of that fact earlier than we would have otherwise known it. Socially useful, right? Exactly the kind of thing a forward-thinking, environmentally-sensitive, whip-smart, global-perspective Hope 'n' Change kind of regime would want to encourage, right?

If, on the other hand, they're wrong, they're all going to lose their shirts anyway when the price crashes down shortly. So either they're socially useful or they're socially irrelevant. Either way, demonizing them is ignorant.

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This page contains a single entry by Rand Simberg published on July 1, 2008 7:38 AM.